The iShares Funds are not sponsored, endorsed, issued, sold or promoted by Barclays, Bloomberg Finance L.P., Cohen & Steers Capital Management, Inc., European Public Real Estate Association (“EPRA® ”), FTSE International Limited (“FTSE”), India Index Services & Products Limited, Interactive Data, JPMorgan Chase & Co., Japan Exchange Group, MSCI Inc., Markit Indices Limited, Morningstar, Inc., The NASDAQ OMX Group, Inc., National Association of Real Estate Investment Trusts (“NAREIT”), New York Stock Exchange, Inc., Russell or S&P Dow Jones Indices LLC. None of these companies make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with the companies listed above. Show Neither FTSE nor NAREIT makes any warranty regarding the FTSE NAREIT Equity REITS Index, FTSE NAREIT All Residential Capped Index or FTSE NAREIT All Mortgage Capped Index; all rights vest in NAREIT. Neither FTSE nor NAREIT makes any warranty regarding the FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index, FTSE EPRA/NAREIT Developed Europe Index or FTSE EPRA/NAREIT Global REIT Index; all rights vest in FTSE, NAREIT and EPRA.“FTSE®” is a trademark of London Stock Exchange Group companies and is used by FTSE under license. The terms “fixed income” and “bonds” are often used interchangeably but in fact, bonds are only one type of fixed income investment in a family (asset class) which includes guaranteed investment certificates (GICs), and money market securities. Typically, these products generate a predictable stream of interest income and/or promise of a future lump sum payment and can be a great way to achieve diversification in your portfolio. There are many different types of fixed income securities, each with its own set of considerations for investors. Here we touch on a few: A bond is a loan made by an investor to an issuer. In turn, the issuer promises to pay the investor a specified rate of interest (the coupon) usually every six months and repay the principal (or face value) of the bond at a future maturity date. The major issuers of bonds are governments and corporations. Interested in learning more about how bonds work? Read Fixed Income Basics. There are a number of different types of bonds for investors to choose from, including:
Government, Provincial and Municipal Bonds Federal, provincial and municipal governments issue bonds to fund deficits or to raise capital for program spending. Generally, maturity terms range from over two to 30 years and interest is payable on a semi-annual basis. The most highly traded bond issues have terms of five, 10, and 30 years.
Corporate bonds are debts issued by companies to raise capital to finance operations and projects. Companies that issue debt are given a rating based on their financial strength, future prospects and past history. Investment-grade bonds must be rated "BBB-" or “Baa3” or higher by credit rating agencies Standard & Poor's or Moody's. Corporate bonds are riskier than government bonds and usually have a higher risk of default. However, the increased risk generally comes with higher returns than “safer” government bonds. Liquidity varies depending on the issuer. High-Yield Bonds Bonds with a credit rating below “BBB-" for S&P or “Baa3” for Moody’s are considered non-investment grade. These bonds are often called high-yield or junk grade because they are riskier and their ability to repay issued debt is more uncertain. It is always important to assess these bonds carefully and to consider the risks. There is a higher potential for capital loss rather than if you were to invest in a bond of higher-quality. Strip Coupons and Residual Bonds Coupons are created from federal, provincial, or municipal bonds whose two basic components — the semi-annual interest payments (coupons) and the principal amount (the residual) — are separated and sold as individual securities. These instruments are purchased at a discount and mature at par ($100). Generally, the longer the term to maturity, the greater the discount. Coupons and residuals pay no interest until maturity and entitle the holder to the security's full face value at maturity. The interest compounds annually at the yield to maturity at the time of purchase. For example, a Canadian strip coupon maturing in five years with a yield of 6% would be priced at $74.72 and mature at $100. Although no money is paid out until maturity, the interest on the bond accrues each year and must be included as income on income tax records annually. Compared with conventional bonds, strip coupons eliminate reinvestment risk over the term of the investment by paying no cash flows until maturity. Coupons may offer higher yields than bonds but its price may fluctuate more than a bond of similar term and credit quality. Coupons offer investors safety (most are government or high-quality corporate-backed), and an attractive guaranteed yield if held to maturity. Strip coupons remain a popular choice for tax-sheltered accounts such as RRSPs and RRIFs. Guaranteed Investment CertificatesA Guaranteed Investment Certificate (GIC) is a deposit investment issued by financial institutions such as chartered banks, trust companies and mortgage and loan companies. GICs offer a specified rate of return for a set period. Many GICs are guaranteed by the Canada Deposit Insurance Corporation (CDIC) for up to $100,000 (this includes both principal and interest), provided that certain criteria are met. Each individual issuer can provide full CDIC coverage, which means that you could invest, for example, $400,000 with four different issuers - all completely CDIC insured and in one account. Risk/return GICs have historically offered a return slightly higher than the return on treasury bills (T-bills). They are popular among investors because the investment is considered safe and fully guaranteed up to the CDIC limit, providing it meets specified criteria. Choice As an RBC Direct Investing client, you have access to GICs from a large selection of financial institutions. Minimum investment amount The minimum initial investment depends on the term but starts at $3,500 par value for registered accounts, $15,000 for non-registered accounts. Par value is the principal value, or the amount at which a security is issued and redeemed at maturity, not including interest. Income With the ability to invest in GICs that offer annual, semi-annual, monthly or compound interest, you may be able to match your investment needs while supplementing your income. Money Market ProductsMoney market products such as treasury bills (T-bills), commercial paper and banker's acceptances are short-term fixed income products that are sold at a discount and mature at par (face value). The difference between your purchase price and par value is your return. Treasury Bills (T-Bills)
Income The difference between your purchase price and par value is your return. This is considered interest income. Banker's Acceptances (BAs)
Income The difference between your purchase price and par value is your return. This is considered interest income. Commercial Paper (CP)
Income The difference between your purchase price and par value is your return. This is considered interest income. Crown Corporate Paper
Income The difference between your purchase price and par value is your return. This is considered interest income. Another way to gain exposure to fixed income is by purchasing Mutual Funds or Exchange Traded Funds (ETFs) What are they? Mutual Funds and Exchange Traded Funds (ETFs) are pooled investment vehicles that have important differences, but they may offer the following advantages over portfolios composed of individual fixed income securities:
Mutual Funds and ETFs also invest in money market instruments, bonds and other fixed income securities. Looking for more information? When you know which kind of product best suits your needs, use the Fixed Income Screener or Mutual Fund Screener or ETF Screener to help with your search. What are the types of fixed income securities?Treasury bonds and bills, municipal bonds, corporate bonds, and certificates of deposit (CDs) are all examples of fixed-income products. Bonds trade over-the-counter (OTC) on the bond market and secondary market.
What are US fixed income investments?Fixed income is an investment approach focused on preservation of capital and income. It typically includes investments like government and corporate bonds, CDs and money market funds. Fixed income can offer a steady stream of income with less risk than stocks.
What are the two basic features of a fixed income security?Coupon Rate and Frequency
The coupon rate is the interest rate that the bondholder will receive. Interest rates can either be fixed over the life of the bond or floating, and the payment frequency can differ depending on the issuer.
Which of the following is a fixed income bearing security?Bonds are the most common type of fixed-income security, but others include CDs, money markets, and preferred shares. Not all bonds are created equal. In other words, different bonds have different terms as well as credit ratings assigned to them based on the financial viability of the issuer.
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Which two of the following are the largest categories of fixed income securities in the US?
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